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Mauritius – China FTA: A stepping stone for Chinese investors?

China and Mauritius Flag

The Free Trade Agreement (FTA) between Mauritius and China finally went into effect on Friday the 1st of January 2021. Signed on the 17th of October 2019, this FTA with the Republic of Mauritius, an African country is a first for the Asian country. China being one of the leading superpowers in the world, would naturally acquire a strategic foothold in the Indian Ocean. Meanwhile, Mauritius aims at positioning itself as a hub between China and Africa.

The China-Mauritius Free Trade Agreement is the 17th free trade agreement signed by China and the first free trade agreement between China and the African countries. It will not only provide a stronger institutional guarantee for deepening the economic and trade relations between the two countries, but also bring new ideas to China-Africa comprehensive strategic partnership to China. It elevates China-Africa economic and trade cooperation to a new height and creates a new situation”, explains  the Chinese Ministry of Commerce. 

China is an important source of supply for Mauritius. In 2019, the African country imported Made in China products worth Rs 33 billion. These are mainly Machinery and transport equipment (Rs13 billion) and manufacturing products (Rs 9.8 billion). Nevertheless Mauritian exports to the Middle Kingdom remain low, slightly exceeding one billion rupees.

The Free Trade Agreement covers key export items for Mauritius such as rum, frozen fish, noodles and pasta, wafers and biscuits, fresh fruits, juices, mineral water, linen, garments, watches, and articles of leather, amongst others. 

Moreover, it also includes a deal with China to grant Mauritius a Tariff Rate Quota of 50,000 tons’ market access for special sugar with an in-quota rate of 15%. 

As far as trade in services is concerned, Mauritius service providers will have access to more than 40 service sectors including financial services, banking, ICT, technical services, building services, and healthcare. Mauritius could also create its companies as wholly-owned or jointly with Chinese operators in China. The FTA will provide Mauritius with new business opportunities for the Chinese sector. The FTA maintains that customers and their portfolios are safe from discrimination and unfair treatment. Moreover, investors will be compensated if the expropriation of their investments is inevitable. 

Mauritius on the other hand will open more than 130 sub-sectors of major services such as telecommunications, education, banking, tourism, culture, transport, and traditional Chinese medicine. Until now, this is the free trade deal in Mauritius, which has the highest degree of transparency in the service industry.

Mauritius and China have also agreed to collaborate in 10 areas, including industrial development to increase competitiveness; to develop manufacturing based on innovation and research; to conduct an exchange of specialists; to have an exchange of researchers for disseminating know-how and for support in technology and innovation and to cooperate in the financial sector. 

As far as investment is concerned, relative to the 1996 China-Mauritius bilateral investment protection agreement, this agreement has been substantially improved in terms of scope of protection, the extent of protection, and dispute resolution. This is the first time that China has upgraded its original investment protection agreement with an African country. It will not only offer more effective legal cover for Chinese companies to fly to Mauritius but will also allow businesses to further extend trade cooperation with Africa through the country’s forum.

The real benefit for Mauritius would be to be used as a hub between China and the African region, putting Mauritius on the front line and gaining more exposure. 

Geopolitics of the Indian Ocean

Mauritius is also in negotiations with India to finalize the proposed Free Trade Agreement which is aimed at further strengthening economic ties between the two countries, said Commerce and Industry Minister Piyush Goyal in a recent interview with Business Standard. He also stated that the proposed India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA) aims to mutually profit both countries in the field of trade in goods and services. 

While China and India are both big players when it comes to Mauritius imports and exports, they are also in conflict following India’s accusations that China provoked military tension at the border in August 2019, and China’s accusations towards India saying they fired shots at its troops in September 2019. 

In an interview with TRT World, Alex Vines, Head of the Africa Programme at Chatham House, expressed his thoughts about Mauritius engaging with China, despite being closely knitted to India. “I think the Mauritians probably realize that they have grown their relationship with India as big as they’ll get, which is why diversifying to get further investments from ASEAN countries and China is a strategy of diversification….one of the world’s leading economies like China [may be] one where they wanted to see increased market participation.” He said.

The US is also closely vying for opportunities in the Indian Ocean as it is known for its natural resources such as fisheries and minerals like nickel, iron, manganese, copper, zinc, silver, and tin. Its basin is also home to 40 percent of the world’s offshore petroleum production. The coastal states of the Indian Ocean have a total population of more than 2 billion people, which is a major source of manpower and economic development.

Independent since 1968, Mauritius quickly forged links with China. Official diplomatic relations between the two countries were established on 15 April 1972 and from then on, the friendly relations of cooperation between China and Mauritius have been further developed.  The African country being the adopted country of many Chinese immigrants since the 19th century. 

After the cultural agreement signed in 1980, China’s first overseas cultural center opened its door to the public on 11th July 1988. China has also provided a certain number of scholarships to Mauritian students since 1983, and at present still have Mauritians studying in China. 

The FTA is only reinforcing this relationship and allowing Mauritius to explore more of its potential in the Indian Ocean. By being the middleman between China and Africa, Mauritius is aiming at becoming a hub in the Indian Ocean, making itself indispensable in the African region. Mauritius has been first in Africa over many aspects and becoming a hub would make Mauritius more than just a dot on the world map. 

China is one of the most influential players on the African continent since the start of the Forum on China-Africa Cooperation (FOCAC) in 2000,  it has increased its footprint on the mainland. The value of China-Africa trade in 2018 was $185 billion, up from $155 billion in 2017.